What happened
Amid a sea of green in most cryptocurrencies and crypto-adjacent stocks today, it's hard to find any asset that's not seeing significant gains. However, among the biggest winners in today's session is crypto miner Riot Platforms (RIOT -5.16%). As of 2:45 p.m. ET, RIOT stock has rocketed 15.4%, among the leaders in the tech-heavy Nasdaq.
This move appears to be driven by a number of key factors. The price of Bitcoin (BTC -2.74%) has continued to move higher, appreciating 2.3% over the past 24 hours. For Bitcoin miners such as Riot, this is a key fundamental metric, which is typically the directional driver for price movements on a given day.
Additionally, a relatively strong operational update provided by Riot last week has provided investors with reason to take a risk-on position with this company. Riot reported 55% year-over-year growth in terms of total Bitcoin production, as well as some nominal Bitcoin sales to fund operations.
Finally, the company's corporate rebranding (from Riot Blockchain to Riot Platforms) has intrigued some investors. That's because within the rebranding press release, Riot noted its strategic shift to focusing on various vertical opportunities to support growth over the long term, in areas such as electrical equipment manufacturing and data center facilities.
So what
Riot's fundamentals, which looked sharp for most of 2021 as Bitcoin prices remained elevated, have begun to deteriorate. The company is seeing quarterly losses swell, and while Riot has put up $0.11 of earnings per share for the trailing 12 months, it's likely that we'll see a negative number in that spot after the company's upcoming earnings report.
Accordingly, this is a stock that's seen outsized interest from short sellers, and for good reason. While some retail investors may be looking for a beaten-down short squeeze to go after to play this rally, it remains to be seen how sustainable today's move in RIOT stock will be a week or two from now.
Now what
As a Bitcoin miner, Riot's ability to produce consistent profitability really depends on whether the price of Bitcoin can stabilize, and preferably rise, to previous levels. At around $17,000 apiece, the long-term profitability of Bitcoin mining remains in serious question. Thus, this is a highly risky bet for those with a less-than-stellar outlook for the world's largest cryptocurrency.
That said, in many ways, Riot represents a very high-beta vehicle for investors to play a bullish stance on crypto. Given the outsized impact rising Bitcoin prices has on Riot's income statement, should we see a rally materialize, this is a stock that could actually outperform the crypto itself.
Given the inherent volatility of Bitcoin (which I think is enough for most investors), Riot is a company that doesn't entice me here. That said, it's easy to see why so many investors are enticed by this beaten-down name right now.
